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EX-32 - SECURITY LAND & DEVELOPMENT CORPexhibit32-1.htm
EX-31 - SECURITY LAND & DEVELOPMENT CORPexhibit31-1.htm

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

x

 

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

 

For the quarterly period ended March 31, 2018

 

 

 

o

 

Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

 

For the transition period of              to            

 

Commission File Number 0-7865.

 


 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

(Exact name of issuer as specified in its charter)

 

Georgia

 

58-1088232

(State or other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

2816 Washington Road, #103, Augusta, Georgia 30909

(Address of Principal Executive Offices)

 

Issuers Telephone Number (706) 736-6334

 

  (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Year)

 


 Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x   NO  o

       

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 

See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)  

Smaller reporting company x

 

    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES x    NO  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        oYes      xNo

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

 

Class

 

Outstanding at May 11, 2018

Common Stock, $0.10 Par Value

 

3,766,290 shares

  

 


 

 

Table of Contents

 

SECURITY LAND AND DEVELOPMENT CORPORATION

Form 10-Q

Index

 

Part I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2018 and September 30, 2017

1

 

 

 

 

Consolidated Statements of Income for the Three Month Periods ended and for the Six Month Periods ended March 31, 2018 and 2017

2

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Month Period ended March 31, 2018 and the Year Ended September 30, 2017.

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Month Periods ended and for the Six Month Periods ended March 31, 2018 and 2017

4

 

 

 

 

Notes to the Consolidated Financial Statements

5-11

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

12-13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

13

 

 

 

Item 4.

Controls and Procedures

13

 

 

 

Part II

OTHER INFORMATION

14

 

 

 

Item 1.

Legal Proceedings

14

 

 

 

Item 1A.

Risk Factors

14

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

14

 

 

 

Item 3.

Defaults Upon Senior Securities

14

 

 

 

Item 4.

Reserved for Future Use

14

 

 

 

Item 5.

Other Information

14

 

 

 

Item 6.

Exhibits

14

 

 

 

 

SIGNATURES

15-17

 

 

 



 

 

 


 

 

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

 

 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

March 31,

 

September 30,

 

 

2018

 

2017

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

CURRENT ASSETS

 

  

 

 

Cash

$ 325,295

 

$ 254,522

 

Receivables from tenants, net of allowance of $72,793 and $71,967

 

 

 

 

at March 31, 2018 and September 30, 2017, respectively

345,317

  

365,589

 

Prepaid property taxes

-

 

29,768

 

 

 

 

 

 

Total current assets

670,612

  

649,879

 

 

 

 

 

 

INVESTMENT PROPERTIES

 

 

 

 

Investment properties for lease, net of accumulated depreciation

6,648,855

  

6,742,993

 

Land and improvements held for investment or development

3,804,728

  

3,804,728

 

 

 

 

 

 

 

10,453,583

 

10,547,721

 

 

 

 

 

 

OTHER ASSETS

15,245

  

17,774

 

 

 

 

 

 

 

$ 11,139,440

  

$ 11,215,374

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Accounts payable and accrued expenses

$ 161,020

  

$ 223,482

 

Income taxes payable

7,615

  

19,917

 

Current maturities of notes payable

397,771

  

388,322

 

 

 

 

 

 

Total current liabilities

566,406

  

631,721

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

Notes payable, less current portion and deferred financing costs

4,131,594

  

4,330,863

 

Deferred income taxes

913,469

  

1,367,556

 

 

 

 

 

 

Total long-term liabilities

5,045,063

 

5,698,419

 

 

 

 

 

 

Total liabilities

5,611,469

 

6,330,140

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

Common stock, par value $.10 per share; 30,000,000 shares authorized;

 

 

 

 

3,766,290 shares issued and outstanding at March 31, 2018 and

 

 

 

 

3,797,137 shares issued and outstanding at September 30, 2017

376,629

 

379,719

 

Retained earnings

5,151,342

 

4,505,515

 

Total Stockholders' Equity

5,527,971

  

4,885,234

 

 

 

  

 

 

Liabilities and Stockholders' Equity

$ 11,139,440

  

$ 11,215,374

 

 

 

  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

-1-

 

 


 

 

 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

CONSOLIDATED STATEMENTS OF INCOME

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

 

 

Ended March 31,

 

Ended March 31,

 

 

2018

 

2017

 

2018

 

2017

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

OPERATING REVENUES

 

 

 

 

 

 

 

 

Rent revenues

 

$ 484,580

 

$ 431,151

 

$ 902,297

 

$ 846,090

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Depreciation and amortization

 

48,334

 

49,351

 

96,667

 

98,703

Property taxes

 

70,023

 

67,594

 

140,047

 

135,187

Payroll and related costs

 

67,644

 

26,778

 

91,173

 

52,841

Insurance and utilities

 

11,658

 

8,506

 

18,024

 

21,647

Repairs and maintenance

 

11,556

 

25,213

 

18,707

 

40,225

Professional services

 

28,527

 

28,460

 

50,267

 

85,492

Other

 

4,280

 

7,737

 

5,289

 

22,572

 

 

 

 

 

 

 

 

 

 

 

242,022

 

213,639

 

420,174

 

456,667

 

 

 

 

 

 

 

 

 

Operating income

 

242,558

 

217,512

 

482,123

 

389,423

 

 

 

 

 

 

 

 

 

OTHER EXPENSE

 

 

 

 

 

 

 

 

Interest

 

45,506

 

36,863

 

115,665

 

73,464

 

 

 

 

 

 

 

 

 

 

 

45,506

 

36,863

 

115,665

 

73,464

 

 

 

 

 

 

 

 

 

Income before income taxes

 

197,052

 

180,649

 

366,458

 

315,959

 

 

 

 

 

 

 

 

 

INCOME TAXES PROVISION (BENEFIT)

 

 

 

 

 

 

 

 

Income tax expense

 

69,613

 

79,245

 

123,820

 

138,376

Income tax deferred benefit

 

(3,665)

 

(10,259)

 

(454,087)

 

(18,027)

 

 

65,948

 

68,986

 

(330,267)

 

120,349

 

 

 

 

 

 

 

 

 

Net income

 

$ 131,104

 

$ 111,663

 

$ 696,725

 

$ 195,610

 

 

 

 

 

 

 

 

 

PER SHARE DATA

 

 

 

 

 

 

 

 

Net income per common share

 

$       0.03

 

$       0.02

 

$       0.18

 

$       0.04

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

-2-

 

 

 

 

 

 

 

 

 

 

 


 

 

 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Total

 

Common

 

Paid-in

 

Retained

 

Stockholders'

 

Stock

 

Capital

 

Earnings

 

Equity

 

 

 

 

 

 

 

 

Balance, September 30, 2016 (audited)

$ 524,311

 

$ 333,216

 

$ 6,226,363

 

$ 7,083,890

Net income

-

 

-

 

331,817

 

331,817

Purchase and retirement of common stock

(144,592)

 

(333,216)

 

(2,052,665)

 

(2,530,473)

Balance, September 30, 2017 (audited)

379,719

 

-

 

4,505,515

 

4,885,234

Net income

-

 

-

 

696,725

 

696,725

Purchase and retirement of common stock

(3,090)

 

-

 

(50,898)

 

(53,988)

Balance, March 31, 2018 (unaudited)

$ 376,629

 

$ -

 

$ 5,151,342

 

$ 5,527,971

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

-3-

 

 

 

 

 


 

 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Six Months

 

Ended March 31,

 

Ended March 31,

 

2018

 

2017

 

2018

 

2017

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income

$ 131,104

 

$ 111,663

 

$ 696,725

 

$ 195,610

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

 

Bad debts

826

 

(3,019)

 

826

 

(1,503)

Depreciation and amortization

48,334

 

48,184

 

96,667

 

96,369

Interest on deferred financing costs

1,333

 

1,167

 

2,666

 

2,334

Deferred income tax

(3,665)

 

(10,259)

 

(454,087)

 

(18,027)

Changes in deferred and accrued amounts

(64,377)

 

52,351

 

(25,550)

 

142,503

 

 

 

 

 

 

 

 

Net cash provided by operating activities

113,555

 

200,087

 

317,247

 

417,286

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Purchase and retirement of common stock

(11,108)

 

-

 

(53,988)

 

-

Principal payments on notes payable

(75,542)

 

(62,218)

 

(192,486)

 

(123,685)

 

 

 

 

 

 

 

 

Net cash used in financing activities

(86,650)

 

(62,218)

 

(246,474)

 

(123,685)

 

 

 

 

 

 

 

 

Net increase in cash

26,905

 

137,869

 

70,773

 

293,601

 

 

 

 

 

 

 

 

CASH, BEGINNING OF PERIOD

298,390

 

656,392

 

254,522

 

500,660

 

 

 

 

 

 

 

 

CASH, END OF PERIOD

$ 325,295

 

$ 794,261

 

$ 325,295

 

$ 794,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

$   44,244

 

$   37,129

 

$ 113,187

 

$   77,508

 

 

 

 

 

 

 

 

Cash paid for income taxes

$ 121,510

 

$   42,862

 

$ 121,510

 

$   43,351

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

-4-

 

 

 


 

 

 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

 Notes to the Consolidated Financial Statements

 

Note 1 – Basis of Presentation

 

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q, Article 8 of Regulation S-X and accounting principles generally accepted in the United States of America; therefore, they do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows. Such statements are unaudited but, in the opinion of management, reflect all adjustments, which are of a normal recurring nature and necessary for a fair presentation of results for the selected interim periods. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the audited financial statements appearing in our Form 10-K for the year ended September 30, 2017 when reviewing these interim financial statements.

 

The financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the accounts of Security Land and Development Corporation and its four wholly owned subsidiaries, Royal Palms Motel, Inc., SLDC, LLC, SLDC 2, LLC and SLDC III, LLC (described on a consolidated basis as the “Company”). Significant intercompany transactions and accounts are eliminated in consolidation.

  

Critical Accounting Policies:
 

Estimates of Useful Lives of Investment Properties for Purposes of Depreciation

 

Management has estimated useful lives of investment properties, except for land that is leased, and the Company utilizes the straight-line method to compute depreciation over the estimated useful lives of the investment properties. Actual depreciation of investment properties will vary from management’s estimates, and the value of investment properties is more directly impacted by market conditions and the physical condition of the investment properties.

 

Evaluation of Long-Lived Assets for Impairment

 

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of investment properties may not be recoverable. In evaluating recoverability, the Company generally estimates future cash flows expected to result from the use of the asset and its eventual disposition. An impairment loss is recognized when the expected future cash flows of the asset are less than its carrying amount.

 

Estimates of Income Tax Rates Applicable to Deferred Taxes

 

The Company has deferred income taxes through a series of tax-deferred like-kind exchange transactions on certain investment properties and through accelerated depreciation elections on certain other assets. Actual income taxes that may become due when taxable gains are realized on the sale of assets may differ from management’s estimates as a result of changes in tax laws, the tax status of the Company, or the actual taxable earnings of the Company in the periods the deferred income taxes become due.

 

Refer to the Company’s Form 10-K for the year ended September 30, 2017 for further information regarding its critical accounting policies.

 

 

(Continued)

 

 

-5-


 

 

 

Note 1 – Basis of Presentation, Continued

 

Recently Issued Accounting Standards

 

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers in future periods. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services.  Adoption of the new rules could affect the timing of revenue recognition for certain transactions.  The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards.  The Company is currently evaluating the impact of adoption and the implementation approach to be used.

 

In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

 

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

 

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

 

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

 

In December 2016, the FASB issued amendments to clarify the Accounting Standards Codification, correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (December 14, 2016) for amendments that do not have transition guidance. Amendments that are subject to transition guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

 

In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers Topic. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

 

 

 

(Continued)

 

-6-

 


 

 

Note 1 – Basis of Presentation, Continued

 

Recently Issued Accounting Standards, continued

 

In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to require all leases with lease terms over 12 months to be capitalized as a right-of-use asset and lease liability on the balance sheet at the date of lease commencement. Leases will be classified as either finance leases or operating leases. This distinction will be relevant for the pattern of expense recognition in the income statement. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

 

In August 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.

 

In November, 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

 

In October 2016, the FASB amended the Income Taxes topic of the Accounting Standards Codification to modify the accounting for intra-entity transfers of assets other than inventory. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

 

In January 2017, the FASB issued guidance to clarify the definitions of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

 

In January 2017, the FASB updated the Accounting Changes and Error Corrections and the Investments—Equity Method and Joint Ventures Topics of the Accounting Standards Codification.  The ASU incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards.  The ASU was effective upon issuance. The Company is currently evaluating the impact on additional disclosure requirements as each of the standards is adopted, however it does not expect these amendments to have a material effect on its financial position, results of operations or cash flows.

 

In January 2017, the FASB amended the Goodwill and Other Topic of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  The Company does not expect these amendments to have a material effect on its financial statements.

 

(Continued)

 

-7-

 


 

 

Note 1 – Basis of Presentation, Continued

 

Recently Issued Accounting Standards, continued

 

In February 2017, the FASB amended the Other Income Topic of the Accounting Standards Codification to clarify the scope of the guidance on nonfinancial asset de-recognition as well as the accounting for partial sales of nonfinancial assets. The amendments conform the de-recognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

 

In September 2017, the FASB updated the Revenue from Contracts with Customers and the Leases Topics of the Accounting Standards Codification. The amendments incorporate into the Accounting Standards Codification recent SEC guidance about certain public business entities (PBEs) electing to use the non-PBE effective dates solely to adopt the FASB’s new standards on revenue and leases. The amendments were effective upon issuance. The Company is currently in the process of evaluating the impact of adoption of this guidance, however it does not expect these amendments to have a material effect on its financial statements.

 

In November 2017, the FASB updated the Income Statement and Revenue from Contracts with Customers Topic of the Accounting Standards Codification. The amendments incorporate into the Accounting Standards Codification recent SEC guidance related to revenue recognition. The amendments were effective upon issuance. The Company is currently evaluating the impact on revenue recognition, however it does not expect these amendments to have a material effect on its financial statements.

 

In March 2018, the FASB updated the Income Taxes Topic of the Accounting Standards Codification. The amendments incorporate into the Accounting Standards Codification recent SEC guidance related to the income tax accounting implications of the Tax Cuts and Job Act. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

Reclassifications

 

Certain reclassifications have been made to a prior quarter ended March 31, 2017. These reclassifications had no effect on previously reported stockholders’ equity, net income or cash flows.

 

Note 2 – Investment Properties

 

Investment properties leased or held for lease to others under operating leases consisted of the following at
March 31, 2018 and September 30, 2017:

 

 

March 31,

2018

 

September 30,

2017

 

 

(unaudited)

 

(audited)

 

 

 

 

 

 

 

 

National Plaza building, land and improvements

$

5,322,260 

 

$

5,322,260 

 

Evans Ground Lease, land and improvements

 

2,382,673 

 

 

2,382,673 

 

Wrightsboro Road building, land and improvements

 

1,929,690 

 

 

1,929,690 

 

Commercial land and improvements

 

3,804,728 

 

 

3,804,728 

 

 

 

13,439,351 

 

 

13,439,351 

 

Less accumulated depreciation

 

(2,985,768)

 

 

(2,891,630)

 

 

 

 

 

 

 

 

Investment properties for lease, net of depreciation

$

10,453,583 

 

$

10,547,721 

 

 

 

 

 

 

 

 

(Continued)

 

 

-8-

 


 

 

Note 2 – Investment Properties, Continued

 

Depreciation expense totaled approximately $47,000 for the three-month periods ended March 31, 2018 and 2017 and approximately $94,000 for the six-month periods ended March 31, 2018 and 2017.  

 

National Plaza is a retail strip center located on Washington Road in Augusta Georgia. Approximately 81% of the rentable space at the National Plaza is leased to Publix Supermarkets, Inc., the National Plaza’s anchor tenant. 

 

The Company entered into a long-term ground lease with a major national tenant and its developer in May 2006 on approximately 18 acres of land in Columbia County, Georgia. The agreement required monthly rental payments of $20,833 during the development period, which was completed in January 2007. Following the expiration of the development period, the lease required annual rental payments of $500,000 for the first 5 years then increasing 5% in years 6, 11, and 16. The lessee has an option to renew in year 21 and another option every 5 years thereafter for a possible total lease term of 50 years.

 

The lease provides for the tenant to pay for insurance and property taxes. The Company is recognizing rents on a straight-line basis over the lease term.

 

In September of 2015, the Company purchased a commercial building consisting of approximately 25,000 square feet of retail space and 27,000 square feet of warehouse space on approximately 3.5 acres of land located on Wrightsboro Road. The retail space is currently leased to a local retailer and rent commenced on October 1, 2015. The related lease term is 10 years with annual rental payments totaling $142,000, paid monthly, increasing to $153,000 per year in 2021. The warehouse space is available for lease. The Company is recognizing rents on a straight-line basis over the lease term. 

 

The Company holds several parcels of land for investment or development purposes, including 19.38 acres of land in North Augusta, South Carolina, purchased in parcels during 2007 and 2008. The Company also owns approximately 85 acres of land in south Richmond County, Georgia and a 1.1-acre parcel along Washington Road in Augusta, Georgia that adjoins the Company’s National Plaza investment property. The aggregate costs of these investment properties held for investment or development was $3,804,728 at both March 31, 2018 and September 30, 2017.

 

Refer to the Company’s Form 10-K for the year ended September 30, 2017 for further information on operating lease agreements and land held for investment or development purposes.

 

 

 

 

 

-9-

 


 

 

Note 3 – Notes Payable

 

Notes payable consisted of the following at:

 

 

 

 

 

 

March 31,
2018

September 30,
2017

(unaudited)

(audited)

 

 

A note payable to a regional financial institution, secured with a mortgage interest in National Plaza and an assignment of rents.  The note is payable in monthly installments of $33,050, through August 2027, and accrues interest at an annual fixed rate of 4.3%. The note payable is collateralized by National Plaza.

 

 

$ 3,057,601

 

 

 

$ 3,188,257

 

A note payable to an insurance company collateralized with approximately 18 acres of land in Columbia County, Georgia, and an assignment of the long-term ground lease.  The note is payable in monthly installments of $17,896, including principal and interest, through May 1, 2027, and bears interest at a fixed rate of 5.85%.

1,520,817

 

1,582,647

 

 

4,578,418

 

4,770,904

Less deferred financing costs

(49,053)

 

(51,719)

Less current maturities of notes payable

(397,771)

 

(388,322)

 

 

$ 4,131,594

 

$ 4,330,863

         

 

Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing and the appreciation in investment properties (which can be sold or mortgaged, if necessary). 

 

Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $397,771. The Company projects that it will be able to fund the payment of its current maturities of notes payable through cash flows generated from its operations and cash on hand, but there can be no assurance that this will occur.

 

Note 4 – Income Taxes

 

At September 30, 2017, the Company had income taxes payable of $19,917 related to the fiscal year 2017. As of March 31, 2018, all income taxes payable related to the fiscal year 2017 had been paid.

 

The Tax Cuts and Jobs Act (TCJA) was signed into law by the President on Friday December 22, 2017. The TCJA  includes the reduction in the corporate tax rate from a top rate of 35% to a flat rate of 21%, changes in business deductions, and many international provisions.  The drop in the corporate rate is effective for tax years beginning after December 31, 2017.  IRC Section 15 indicates that “if any rate of tax imposed…changes, and if the taxable year includes the effective date of the change…, then tentative taxes shall be computed by applying the rate for the period before the effective date of the change, and the rate for the period on and after such date, to the taxable income for the entire taxable year, and the tax for such taxable year shall be the sum of that proportion of each tentative tax which the number of days in each period bears to the number of days in the entire taxable year.” (§15(a)).  As the Company is a fiscal year taxpayer, they will receive a partial benefit for the drop in the federal corporate tax rate for their fiscal year ended September 30, 2018.  The weighted average federal tax rate computed in accordance with IRC Section 15 is 24.25% for the current fiscal year.

Based on the drop in the corporate tax rate to a flat 21%, the Company revalued each of their deferred tax assets and liabilities in the current period using the new corporate tax rate.  The net impact from this revaluing resulted in a tax benefit of $463,167 recognized as of December 31, 2017.

 

 

(Continued)

-10-

 


 

 

Note 4 – Income Taxes, Continued

 

Income taxes have been provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

During the six-month period ended March 31, 2018, the Company recorded $330,267 in income tax benefits at an effective rate of -90.12% The Company records income taxes using an estimated annual effective tax rate for interim reporting. The individually largest factor contributing to the difference between the federal statutory rate of 24.25% and the Company’s effective tax rate for the six-month period ended March 31, 2018 was the benefit relating to the revaluing of the deferred tax asset and liability balances to the new federal statutory rate.  

 

Note 5 - Concentrations

 

Substantially all of the Company’s assets consist of real estate located in Richmond and Columbia Counties in the state of Georgia and in Aiken County, South Carolina. Substantially all of the Company’s revenues are earned from three of the Company’s investment properties, National Plaza, the Evans Ground Lease, and the Wrightsboro Road Lease, which comprise approximately 55%, 37% and 8% of the Company’s revenues, respectively, for the three-month period ended March 31, 2018. The anchor tenant for National Plaza, Publix Supermarkets, Inc. (“Publix”), a regional food supermarket chain, leases approximately 81% of the space at National Plaza. The Company generates approximately 29% of its revenues through its lease with Publix.

 

Note 6 - Related Party Transactions

 

During the quarter, the Company paid a stockholder who is also the son of the President for accounting services. The Company’s Board of Directors believes that the accounting services paid to the son of its President were not in excess of prices that would have been paid had the Company obtained accounting services from other sources.

 

Note 7 – Stockholders’ Equity

 

On February 7, 2017, Security Land and Development Corporation offered to purchase up to 2,526,247 shares (approximately 48.2% of the Company’s outstanding shares) of its common stock from its stockholders through a tender offer (“the Offer”) at a price of $1.25 per share. The Offer is part of a plan intended to enhance stockholder value and provide liquidity for the stockholders. The Offer expired on March 15, 2017, was extended by the Company, and on April 19, 2017 Security Land and Development Corporation amended the above offer to increase the offer price to $1.60 per share. The amended Offer expired on May 5, 2017.  On May 5, 2017, Security Land and Development Corporation amended the April 19, 2017 Offer to increase the offer price to $1.75 per share. Within the offer period, 192,860 shares were sold by members of the Board of Directors who are not part of the Flanagin family. As of March 31, 2018, the Flanagin family owned approximately 58% of the Company’s common stock. During the offer period, the Company has purchased and retired a total of 1,477,817 shares of its stock for $2,584,430. Included within these shares purchased by the Company were 192,860 shares sold by members of the Board of Directors who are not part of the Flanagin family. The Company utilized cash on hand and funds obtained from the line of credit that has since been converted to a term note. See Note 3 – Notes Payable. 

 

 

 

-11-

 


 

 

Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Results of Operations:

 

The Company’s results of operations for the six months ended March 31, 2018, and a comparative analysis of the same period for 2017 are presented below:

 

 

 

 

 

 

 

 

Increase (decrease)

 

 

 

 

 

 

 

2018 compared to 2017

 

2018

 

2017

 

Amount

 

Percent

 

 

 

 

 

 

 

 

 

 

 

Rent revenues

$

902,297 

 

$

846,090

 

$

56,207 

 

7%

Operating expenses

 

420,174 

 

 

456,667

 

 

(36,493)

 

-8%

Interest expense

 

115,665 

 

 

73,464

 

 

42,201 

 

57%

Income tax (benefit) expense, net

 

(330,267)

 

 

120,349

 

 

(450,616)

 

-374%

Net income

 

696,725 

 

 

195,610

 

 

501,115 

 

256%

 

 

 

 

 

 

 

 

 

 

 

Rent revenues consist of rent revenue from the Company’s National Plaza, a strip center on Washington Road in Augusta, Georgia, and the Evans Ground Lease in Evans, Georgia. The Company also earned rent revenue from a lease on the Wrightsboro Road property with an apparel and home goods retailer and a ground lease with an auto-repair service operation on an out-parcel of National Plaza.

 

Refer to the Company’s Form 10-K for the year ended September 30, 2017 for further information regarding the properties owned and their lease terms.

 

Total operating expenses for the six months ended March 31, 2018 decreased compared to the same period for 2017 due primarily to roofing and plumbing repair costs incurred in 2017 that were not incurred in the current period. Refer to the Company’s Form 10-K for the year ended September 30, 2017 for further information regarding these transactions. Management expects operating expenses for the remainder of the current fiscal year to be in-line with operating expenses above incurred during the first two quarters of fiscal year 2018.

 

Interest expense for the six months ended March 31, 2018 increased compared to 2017 due to the increase in debt resulting from the debt restructuring completed in the prior year. Management expects interest expense for the remainder of the current fiscal year to be in-line with interest expense incurred during the first two quarters of fiscal year 2018.

 

Income tax expense for the six-month period ended March 31, 2018 decreased significantly compared to the same period for 2017 due to the Tax Cuts and Job Act being signed into law in December 2017.

 

Liquidity and Sources of Capital:

 

The Company’s ratio of current assets to current liabilities at March 31, 2018 was 118%. The ratio was 103% at September 30, 2017. 

 

Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing, and the appreciation in investment properties (which can be sold or mortgaged, if necessary). 

 

Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $397,771. The Company projects that it will be able to fund the payment of its current maturities of notes payable through cash flows generated from its operations and cash on hand, but there can be no assurance that this will occur.

 

 

 

 

-12-

 


 

 

 Cautionary Note Regarding Forward-Looking Statements:

 

The results of operations for the six months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the entire fiscal year. The Company may, from time to time, make written or oral forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission (the “Commission”) and its reports to stockholders. Such forward-looking statements are made based on management’s belief as well as assumptions made by, and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, but not limited to, competition from other real estate companies, the ability of the Company to obtain financing for projects, and the continuing operations of tenants.

 

Item  3. Quantitative and Qualitative Disclosures About Market Risks

 

Not applicable to smaller reporting companies.

 

Item  4. Controls and Procedures

 

(a)      Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures were ineffective.

 

(b)      There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date the Chief Executive Officer carried out the evaluation.

          

           As of September 30, 2017, the Company’s management evaluated the effectiveness of its internal control. Based on the evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was ineffective as of September 30, 2017 and identified a material weakness related to the lack of segregation of duties, accounting personnel with the requisite knowledge of GAAP and the lack of written policies and procedures over financial reporting.

 

           Notwithstanding the existence of this material weakness in our internal control over financial reporting, our management believes that the consolidated financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented. There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

 

 

-13-

 


 

 

PART II - OTHER INFORMATION

 

Item  1. Legal Proceedings

 

None 

 

Item  1A. Risk Factors

 

The Company, as a smaller reporting company, is not required to provide the information required by this item.

 

Item  2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item  3. Defaults Upon Senior Securities

 

None

 

Item  4. Reserved for Future Use

 

Item  5. Other Information

 

Management of the Company notes that Forms 8-K were filed during the period for the departure of two members of the Board of Directors. Management is not aware of any un-reported matters occurring during the period that would require any additional disclosures in a Form 8-K. 

 

Item  6. Exhibits

 

(a)

 

Exhibit No.

 

Description

 

 

31.1

 

Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

32.1

 

Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

 

 

 

 

 

    101   The following financial information from Security Land and Development Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 is formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

-14-

 


 

 

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SECURITY LAND AND DEVELOPMENT CORPORATION

(Registrant)

 

 

 

 

 

 

By:

/s/ T. Greenlee Flanagin

 

May 11, 2018

 

 

 

 

 

 

T. Greenlee Flanagin

 

Date

 

 

President

 

 

 

 

Chief Executive Officer and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-15-